6 Stocks With Improving Sales, Profits

Intel's (INTC) stock performance stands at odds with its prosperity. In its third quarter it delivered 17% earnings per share growth and its fifth straight quarter of record sales. That, as consumer spending fell 3.1% in the third quarter, its steepest drop since 1980. Intel's earnings are expected to dip a penny per share to 37 cents this quarter but rise 5% to $1.24 for the year -- a year when earnings underlying the S&P 500 index are on their way to falling 12%. Yet while the index is down 39% year to date, the Santa Clara, Calif., chip maker has lost 46% of its share value.

Investors, then, might think Wall Street analysts are too rosy in their forecasts for Intel, whose processors power 80% of the world's computers. Economic signs, after all, seem darker by the day. Consumer sentiment scores recently hit record lows in the U.S. and U.K. A Bloomberg survey of 59 economists published Wednesday showed consumer spending is expected to slide another 2.9% this quarter and 1.3% in the first three quarters of 2009. That would mark its longest decline since World War II.

Yet even next year, analysts expect Intel to tack another 3% onto its earnings per share. If they're right, shares are surely a good deal today. They go for 11 times forecast 2008 earnings, a discount of 8% to the S&P 500. More important in a long, down market, they carry a 3.9% dividend yield, compared with 3.3% for the index.

But the consensus could easily be wrong on Intel. According to a Tuesday report by ThinkEquity, a San Francisco investment bank, calls to Taiwanese "original design manufacturers," whose products are ultimately branded by other companies for sale, showed that notebook orders that held up well in October have weakened considerably so far in November. Mobile products like notebooks have recently accounted for 46% of Intel's sales and just about all of its growth.

Best to consider the worst that Wall Street can imagine before buying the stock. Of 38 analysts with estimates for next year's earnings, the gloomiest is looking for 93 cents a share -- 21% less than Intel earned last year. Assuming the company earns just that, and that investors are still willing to pay 11 times earnings, shares would tumble to $10 from just below $14 today. At $10, though, the dividend yield would work out to more than 5.5%. Payments seem safe; over the past three quarters they amounted to only 14% of profits. Intel spent more on share repurchases than on dividends. (Long-suffering stockholders would surely prefer Intel devote more to dividends.)

Bottom line: Intel might have further to fall, but at some point a stock with a stable dividend starts to look like a bond. A 5.5% dividend reinvested each quarter doubles an investor's money in 13 years, even without share price gains or dividend increases. At $10 Intel would be a steal, but for patient investors looking to tuck away strong, dividend-paying winners and reinvest their payments, it's already time to start buying.

Intel turned up recently on a search for companies that have grown sales and profits of late and that carry decent dividends. Have a look at all six screen survivors if you like, or use SmartMoney's stock screener to create your own list.

Story update: Looks like we now know why Intel’s stock this year has sharply underperformed its earnings outlook. After the market’s close Wednesday, Intel reduced fourth-quarter sales guidance by 14%. It seems ThinkEquity's warning that notebook orders have suddenly slowed in November was prescient. Dividend hunters ought to be interested in the stock’s reaction. My illustration of a $10 share price accompanied by a 5.5% yield might have been extreme, but a further price decline and a fatter yield now seem likely.